Advanced Global Trading: “Any price for VCUs is meaningful if a buyer can be found at such price”

Farah Halime, a journalist based in Cairo, reports that records from Dubai’s Department of Economic Development show that AGT’s license in Dubai will expire today. When she asked AGT whether it plans to renew the licence, the company re-sent her a statement it produced last week.

AGT’s statement as sent to Halime is posted in full below and can be downloaded here.

In short, AGT refutes that it runs a Ponzi scheme or boiler room, but the full statement is worth reading – if only as an illustration of how selective AGT is in its presentations about the voluntary carbon credit market. There is no information about how AGT prices its carbon credits, or why its clients now find they cannot sell their carbon credits, apart from “recent market conditions”. That’s strange, because not long ago, AGT’s then-head of investments, Franklin Connellan, claimed that, “The beauty of the carbon market is that it is only driven by supply and demand.” And AGT’s CEO Charles Stephenson described voluntary carbon credits as, “a commodity that never goes down”.

Two points illustrate what’s wrong with AGT’s statement:

1. AGT does not allow its clients to choose from which projects they buy their carbon credits.

As a result of this, at least one client ended up with near-worthless credits from an HFC-23 industrial gas project in China.

Here’s how AGT explains this, in its statement:

AGT doesn’t distinguish among projects and therefore doesn’t price the credits from one project differently from another. From AGT and its clients’ perspectives, a Carbon Credit is simply equivalent to one tonne of carbon dioxide. It is typically not feasible by a broker such as AGT, and it is not AGT’s business model, to give clients, individual or corporate, the option to choose credits from a specific project. Carbon Credits, generally, and VCUs specifically, do not expire. Therefore, there is little relevancy for the recording of the vintage year as suggested by some.

Imagine a company selling mobile phones and telling customers that there’s no difference between, say a Motorola DynaTAC and an iPhone 5. For fairly obvious reasons, no one would buy a mobile phone from this company. Yet this is, in effect, what AGT is doing when it fails to differentiate between the different types of projects that generate voluntary carbon credits .

2. AGT selects the information about the voluntary carbon market that suits its purpose, and ignores the rest.

AGT quotes from a recent report from Bloomberg and Ecosystem Marketplace, to show that the market grew by 4% in 2012. (The Executive Summary can be downloaded here – the full report is not yet available.) The same report found that the average price of voluntary carbon credits fell by almost 5% in 2012 down to US$5.9/t. Given that AGT doesn’t “price the credits from one project differently from another” this is a crucial piece of information for AGT’s clients. Of course, AGT chooses not to mention it.

As a commentator on REDD-Monitor points out, AGT selectively quotes from the International Emissions Trading Association, to give the impression that IETA approves of companies that sell voluntary carbon credits as an investment. AGT misses out this (important) part of the statement, which is by IETA and the International Carbon Reduction and Offset Alliance:

[W]e believe that the sale of VERs to the general public (who are not familiar with the voluntary carbon market) for investment rather than immediate retirement purposes, does not represent best practice in the industry.

Recently there has been a concerted effort by various ‘anonymous’ persons, mainly online, claiming Advanced Global Trading (AGT) is a “boiler room” type organisation or is a company running a “Ponzi scheme”. There have been other negative allegations and unsubstantiated claims against AGT that are erroneous and at times defamatory. Such anonymous persons are typically suggesting they are either ex-employees or clients of AGT. AGT is in no position to verify the motives or determination of persons who remain anonymous, but it is clear such individuals are intent to harm our company and the markets we serve which invariably will directly or indirectly harm our clients, staff and operations.

AGT hereby wishes to set the record straight and refute the malicious allegations and claims being made against our company. Firstly, we hope the readers of this statement similarly find it curious that all of the negative allegations and claims have come only from anonymous sources. We are in regular contact with our clients and we believe any client concerned with any aspect of our business or their investment in Carbon Credits is unlikely to anonymously post any such concerns in public forums such as blogs based out of Indonesia. Our valued clients, and others who are interested in our business, can contact us directly if they have any questions or concerns. Our contact information is transparently posted on our website at www.advancedglobaltrading.com. Further, each of our clients is assigned a personal client liaison representative to address any of their questions or needs and we encourage our clients to contact their representative.

We have always done everything we can to protect the interests and investments of our clients and will continue to do so. No amount of anonymous postings and misinformation will deter us from our resolve. We offer the following information to the readers of this statement to set the record straight about AGT, our business and the markets we participate in:

AGT is an international carbon trading and environmental consultancy firm
headquartered in Dubai, United Arab Emirates (UAE). AGT does not run a “Ponzi scheme” or a “boiler room” and any allegations to the same are categorically refuted.

In the UAE, AGT operates as an “onshore” company with a trade license issued by the Department of Economic Development that includes the trading of “Carbon Credits” as its authorised activities. In fact AGT worked with the DED to formulate an accurate description of the department’s “Carbon Credits” activity.

AGT deals in sourcing and trading of Carbon Credits, and specialises in buying and selling of Voluntary Emissions Reduction, or VERs, in the dynamic over-the-counter green markets. Of the two quality standards for the voluntary carbon offset industry, the Verified Carbon Standard (“VCS”) and The Gold Standard, AGT currently only deals in sourcing and trading of VCS approved Carbon Credits. VCS VERs are called “VCUs”.

AGT only deals in SPOT Carbon Credits. AGT does not deal in any speculative credits such as forwards, futures or options. There are essentially two main types of transactions, “spot” and “forward”. Spot transactions are carried out for VERs, which (i) have already been generated, (ii) have completed verification by an independent third-party (ie. VCS), and (iii) are available for immediate physical delivery through the registry system. Forward transactions instead are carried out for VERs with a generation schedule typically over several years.

AGT doesn’t distinguish among projects and therefore doesn’t price the credits from one project differently from another. From AGT and its clients’ perspectives, a Carbon Credit is simply equivalent to one tonne of carbon dioxide. It is typically not feasible by a broker such as AGT, and it is not AGT’s business model, to give clients, individual or corporate, the option to choose credits from a specific project. Carbon Credits, generally, and VCUs specifically, do not expire. Therefore, there is little relevancy for the recording of the vintage year as suggested by some.

Fundamentally, AGT’s business model is very simple. AGT sells VCUs, with a minimum purchase level of $25,000, to corporates and individuals for investment or retirement purposes. The VCUs are sold to such persons at AGT’s platform price. One of the advantages of dealing with AGT is that clients who purchase VCUs from AGT then are given access to AGT’s bespoke trading platform whereby they can either purchase more VCUs or try to sell their existing VCUs within the platform. In the event a client wishes to sell their existing VCUs within AGT’s platform, AGT assists the client source a willing buyer at AGT’s platform price. Another advantage of dealing with AGT is that its platform price is transparently known to its clients and this price is the price at which VCUs are sold to clients as well as the price at which a client may sell VCUs within AGT’s platform (all subject to AGT’s terms and conditions which are agreed to by all clients at time of purchase and which are posted on AGT’s website). While a client owns VCUs that he or she has purchased from AGT, AGT holds such VCUs for such client as trustee. Ultimately, the VCU assets purchased by a client are the clients’ assets, which they can do with as they choose including, sell, hold, or retire (through AGT or any other broker). AGT, as trustee, holding client’s VCUs may not initiate any dealings with such VCUs and only acts in accordance with a client’s written instructions.

“VCUs exist only in the registry accounts and ownership can only be transferred between VCS registry account holders. VCUs cannot be transferred via other databases or paper certificates. The fungibility – or tradability – of VCUs provides critical flexibility that rewards innovation and lowers the overall time and cost required to curb GHG emissions at scale” (extract from VCS website). Individuals typically are not able to open a registry account to hold or trade Carbon Credits or VCUs. Also, a company may not find it feasible or desirable to open a registry account, in particular if its Carbon Credit holdings are relatively small. As a result, a broker typically has its own registry account and then is able to act as the custodian/ trustee holder of Carbon Credits for its clients. It should be noted that AGT’s business model does not charge a fee for the services associated with holding of carbon credits or VCUs on behalf of its clients.

The purchase and sale of VCUs is pursuant to AGT’s terms and conditions which are incorporated in every purchase order and are also posted on AGT’s website. The terms and conditions transparently set out, among other things, the various risk warnings associated with investment in VCUs including warnings related to liquidity and pricing. AGT is confident that the great majority of its clients understand that any investment, including those in VCUs, carry a certain level of risk and that there are never any guarantees when making investment decisions.

There has been much written, in particular within online blogs, that VCUs are not suitable for investment purposes. It is important to note that VCS and other key organisations do not share this view. For example, many have suggested the UK Financial Services Authority takes the position that VCUs are not suitable for investment purposes. In fact, and to the contrary, the FSA states (on its website): “Carbon credits can be sold and traded legitimately and there are many reputable firms operating in the sector”. Further, the FSA states: “If you are considering buying Carbon Credits or investing in a related scheme, make sure you fully understand how the sector works and risks involved”. Therefore, the FSA does not take the position that is being suggested by some online bloggers that Carbon Credits should not be used for investment purposes and any such suggestion is simply misrepresentative. The FSA correctly warns against unscrupulous traders/brokers, futures contracts, collective investment schemes and directs investors to make informed decisions. AGT agrees with all of these warnings. As stated above, AGT does not deal in futures contracts or collective schemes. AGT only deals with relatively sophisticated investors (who invest at a minimum of $25,000 and pass AGT’s know-your-client procedures) who are able to, and are experienced in, assessing risk and reward in connection with investments. As we state below, AGT conducts its business in what it considers to be market best practices, in many ways akin to regulated entities, to distinguish itself from the unscrupulous brokers/traders that operate in the Carbon Credit market.

While generally any analyst or market participant is entitled to have their own opinions about investment in Carbon Credits, it is not right to suggest that all such persons share the same view. Equally credible entities or organisations may have differing views. Another example to note is statements made by the International Emissions Trading Association who state as follows: “Investors and established companies are a welcomed complement to the emerging market … The voluntary market complements the compliance market for GHG reduction, increasing the overall effectiveness of the market approach. The voluntary market acts as an integral part in securing and developing markets for GHG reductions on a global scale. Its importance in a post-2012 regime is increasingly being recognised as an instrument in climate change mitigation”. Yet another example to note is statements made by Jonathan Shopley, a board member of the Climate Markets and Investment Association, who is quoted in a recent article in The National newspaper of Abu Dhabi about the carbon market, generally, and AGT specifically: “Investment in the voluntary carbon market is not a bad thing in and of itself. Specifically, for investors who understand the risks.”

Regarding the pricing of VCUs, there has not been any “price crash” by AGT as suggested in some of the blogs. AGT is currently conducting a survey amongst its clients who have shown an interest in exiting out of their VCU position to determine what new price, if any, should be assigned to VCUs on AGT’s platform. Any price for VCUs is meaningful if a buyer can be found at such price. AGT has no plans to unilaterally bring the price of VCUs down. It should be noted however, that recent market conditions have generally slowed the demand for Carbon Credits and AGT is experiencing, at this time, relative difficulty in finding suitable buyers for the VCUs of its clients who are wishing to liquidate their positions. However, AGT’s long-term view of the VCU market remains cautiously optimistic. It is important to note, that despite the “doomsday scenarios” being espoused by many online bloggers regarding the carbon market, the recent Bloomberg report entitled “Manoeuvring the Mosaic State of the Voluntary Carbon Markets 2013” published May 30, 2013 states: “Voluntary demand for carbon offsetting grew 4% in 2012 when buyers committed more than $523,000,000.” Furthermore, the Bloomberg report states: “Suppliers predict market value could reach $1.6billion to $2.3billion in 2020 (based on current dollar value without consideration to inflation).” The Bloomberg report also points out that over 98% of all trades (98.5 million tonnes) occurred bi-laterally or over the counter (OTC) rather than on any formal exchange. As mentioned above, this is AGT’s business model.

The Carbon Credit market is currently unregulated in most of the jurisdictions around the world including the United States, United Kingdom and much of European Union, and the Middle East countries. Notwithstanding, AGT has incorporated many operational and management practices and principles akin to those found in regulated entities in an effort to, among other things, (i) distinguish itself from other market participants by establishing itself as a more professional, secure and viable business, (ii) provide greater confidence and security to its clients and other stakeholders, and (iii) position itself for its long term expansion and growth initiatives and aspirations.

AGT has developed a self-regulatory and best practices framework which, among other things, highlights the manner by which AGT currently conducts the various aspects of its business and which it considers to be industry-wide best practices. This framework was developed in conjunction with our legal counsel in Dubai (Anjarwalla Collins & Haidermota) and United States (Baker McKenzie) and has been presented to various participants in the voluntary carbon market in an effort to establish it as the industry standard for the buying and selling of Carbon Credits at the retail level. In summary, AGT is striving to be the leader in establishing best practices standards typically practiced by regulated entities in an otherwise unregulated market.

AGT has never changed its corporate name. AGT has no plans to close operations. AGT’s current offices (in UAE, Bahrain, Qatar and South Africa) are open for business.

AGT, as a best practice, has invested extensively in the development and registration of its intellectual property, particularly its trademark. AGT strives to be a recognisable company within the marketplace and to be known for superior service, reputation, and expertise. Today, after a relatively short period of time during which AGT has been in existence, it already enjoys successful brand recognition in the marketplace. AGT currently and thus far has registered its trademark in the following key jurisdictions: UK and European Union countries, United States, Canada, South Africa, Switzerland, United Arab Emirates, Norway, Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. AGT will continue to register in additional countries as part of its global expansion plan.

All clients of AGT should note their VCUs continue to be securely held by AGT. AGT continues to act as its clients’ trustee in holding client VCUs. If any client has any doubt about any aspect of their purchased assets or AGT, such client is free to move their assets to any other broker with written instructions to AGT to this effect. While AGT does not wish for any client to cease being its client (as AGT values all of its clients), AGT does not wish for any client to have any uncertainty about their investments’ security. Notwithstanding, disgruntled clients should take particular note of the dispute resolution provisions in the AGT terms and conditions, which they have agreed to at the time of their VCU purchase. Such provisions clearly state the governing law of their relationship with AGT and the mechanism by which any dispute they may have with AGT may be resolved.

All clients, and other interested parties, should note that AGT has complied with, and passed, any due diligence ever conducted by any person or organisation in connection with its business practices, ownership structure or any other aspect of its operations.

We hope the above statements sufficiently and clearly present AGT’s position on, and respond to, the erroneous and unsubstantiated allegations and claims being made against it. A great deal of resources, including management time and money, has been spent by AGT in the past few weeks addressing such allegations and claims which have limited

AGT’s ability to expand its operations, deliver services to clients or generally effectively continue its business. If AGT does not place its focus back on operating its business, and focuses unnecessarily on “anonymous” allegations and falsehoods, the ultimate harm will be on its valued clients, employees and the markets it serves. As any reasonable person would agree, trying to constantly disprove a raft of negative claims – conjured up by clearly self-motivated individuals or organisations – is impossible and creates an unsustainable situation.

Published

AGT Quote: the FSA states (on its website): “Carbon credits can be sold and traded legitimately and there are many reputable firms operating in the sector”. Further, the FSA states: “If you are considering buying Carbon Credits or investing in a related scheme, make sure you fully understand how the sector works and risks involved”. Therefore, the FSA does not take the position that is being suggested by some online bloggers that Carbon Credits should not be used for investment purposes and any such suggestion is simply misrepresentative.

Are they telling the truth? Yes and no, the quotes they have used actually come from an FSA warning about boiler rooms and are the opening comments of the article and NOT representative in a any way. Please read the FULL FSA article from the link below which starts:

We continue to receive many reports from people who have been approached by firms promoting carbon credits in the UK. Find out why you should be wary about investing in the carbon credit market.

Carbon credits can be sold and traded legitimately and there are many reputable firms operating in the sector.

However, we are concerned that an increasing number of firms are using dubious, high-pressure sales tactics and targeting vulnerable consumers.

Unlike instruments approved for use in compulsory carbon cap and trade programs, no entities are required to purchase and retire voluntary carbon offsets. Entities that voluntarily seek to offset their GHG emissions footprint (such as corporations, governments and individuals), project developers, traders and investors are active participants in the VCU market. Therefore, there is little ability to accurately forecast demand and supply in the voluntary carbon offset space. AS A RESULT, APX STRONGLY BELIEVES THAT VCUS ARE NOT SUITED FOR INDIVIDUALS TO TARGET AS A SHORT, MEDIUM OR LONG-TERM INVESTMENT. OUR VIEW IS SHARED BY THE UK FINANCIAL SERVICES

@Derek (#3) – Actually, that’s what APX says, the VCS Registry. That’s not the same thing as VCS. And to be honest, VCS do seem to be supporting AGT’s position. I wrote a post asking the question “Why doesn’t VCS warn against buying carbon credits as an investment?”. I suggested that something along the lines of the APX warning would be appropriate for the VCS website.

VCS is not an investment firm, and as such, does not offer any advice to potential investors. Whether or not a speculative investment in VCUs will one day pay off years, or decades down the line is not for us to say. People are free to invest their own money as they see fit.

Unfortunately, it doesn’t really matter where the credits are registered. The point is that they are worthless. AGT sold near-worthless carbon credits at vastly inflated prices. See the last four paragraphs of this post for more information about credits from HFC-23 projects in China.

What I like is that AGT have developed their compulsive […] syndrome to the point that they actually believe their own […].

Riddle me this… Why would large corporate bodies pay a price that could offer an AGT investors a profit when they can buy directly from a project for a fraction of the cost?

AGT’s structure is specifically setup to circumvent UK regulatory authorities by being based overseas. Whilst also dodging tax payable in those areas. Dubai is exempt from corporation tax and therefor perfect for companies taking money out of the countries they are selling to.

Incidentally there have been numerous money laundering cases in recent times involving Dubai. In particular HSBC has a multimillion dollar case currently being investigated.

The fact AGT has now moved into “Strategic Earth Metals” only furthers the case that they are […] artists. Both products have no common market and their reputation as a “trader” of such items seems to be based on “You can’t prove we’re lying so legally you have to shut up or it could be construed as liable!”

Quite planely a company like this can coexist with investors happily all the time they are paying returns generated from others’ capital. That is until the majority want to exit and they got into liquidation.

The fact that they have sold investors an “asset” legally relieves them of any obligation to provide returns as the company can go bust and investors are assured that they still own the credits. GREAT! I own a load of shit at 50p each that I paid you £10+ for! It’s what’s known in the industry as a “spank shop” albeit a very polished one that experienced investors will be forgiven for falling for.

[R-M: This comment has been edited. The deleted parts are indicated: […].]

REDDisms:

“But the big elephant in the room is the fact that if you want to use market mechanisms you need the demand. Until the countries pledge to legally binding targets to reduce their emissions, it’s all somewhat of a moot discussion.”